Most headlines are about specific coins, BTC, ETH, UST (RIP), etc. And for many crypto-curious people, a cryptocurrency is still not seen as a terribly attractive investment, especially with the turmoil in the markets. Fortunately, there’s so much more to DeFi than cryptocurrencies. DeFi will open up new ways for start-ups to fundraise, companies to provide employees stock options, mechanisms to prove ownership of physical assets, and basically, anything involving a transaction between two or more parties. Unfortunately, there just aren’t a lot of mouths talking about it. When it comes to investing in this new technology sector we call DeFi, knowing how to find and invest in such innovative uses for this technology is critical. After all, blockchain technology is simply the best system humans have created for transparent and trustless exchange.
DeFi is more extensive than individual cryptocurrencies, and it’s becoming increasingly apparent that not every protocol needs one. Why, you might ask? We recognize that for significant adoption to occur, we must get familiar with a smaller pool of dominant currencies. However, that doesn’t remove the need for different cryptocurrencies as the DeFi ecosystem continues to expand.
Tokens are Web3’s equivalent to shares and are great for becoming the all encapsulating medium of exchange within a specific protocol or entire ecosystem. With the trending real yield narrative, the shares analogy strengthens as protocols begin to pay token holders their fair share of fees or product revenue from the platform. Transaction costs and other services stay relevant to the native token, removing major exchange requirements. On top of that, projects can quickly raise funds for further development and innovation whenever needed.
Looking forward, we expect DeFi to transcend individual token use cases, as we’re already beginning to see the initial potent use cases DeFi has to offer.
DeFi isn’t all about different tokens. It can potentially change almost all the practices we consider normal in TradFi, from fundraising to employee stock options. How, you might ask? Operating in DeFi, we can enjoy a trustless working environment and enable transactions and deals based on the rational smart contract, not the irrational mind.
Traditional fundraising is primarily done through two tools: Debt and Equity. Debt could be a simple bank loan with fixed or variable interest payments. Equity fundraising can come from many sources, such as private investors or family and friends, and involves parting with a percentage of your company in return for capital.
The problem is the timeline and eligibility. Bank loans have set rules, depending on where you live, how much you can borrow, and the payback period. These rules are limiting to those who have a great idea that may be capital intensive at the beginning but don’t have outstanding TradFi credentials to receive the amount of funding they require. The same applies to equity fundraising. From the top of your head, how many people could you call that would be willing to put a considerable amount of capital into your project? For most people, that number is zero.
So why does DeFi help? Instead of debt or equity fundraising, DeFi uses cryptocurrency (or token) fundraising. Instead of debt or equity, tokens are used as the incentive for investors in an ICO or IDO format (Initial Coin / decentralized exchange Offering).
When a token sale occurs, no equity changes hands. This means project founders get to keep 100% of their project as it grows, without ownership dilution from shareholders. Many businesses in TradFi have to change directions after shareholders get on-board, ruining the innovative idea that made it successful in the first place! Bad or good direction doesn’t matter! Founder’s direction.
ICO / IDOs are incredibly fast compared to traditional fundraising. No documents are signed or required. Tokens are instantly sold, providing essential liquid capital for the developing project and its founders. There is no other method of funding, other than physical cash, you can have in your hands faster.
Cash has to be in person, while token funding is a diverse global marketplace with smaller costs and little regulation compared to debt and equity fundraising. Even equity fundraising is directly limited by regulators, restricting who and where you can invest from.
Stock options for employees, predominantly in startups, are now a go-to way for startups with smaller cash flows than larger organizations to incentivize their employees to work hard on the idea, knowing they own part of the company. Instead of worrying about the logistics of getting your shares, DeFi is making it possible to make the process trustless through smart contracts.
Evo, an AI company, is a prime example. Through tokenization on the Ethereum blockchain, they were able to grant employees with over a year at the company considerable stock options. Instead of the lengthy legal documents traditionally required, recipients can monitor and receive their stock options with full transparency. They never asked their superior for their stock options; it just happened.
Fundraising and employee stock options are only two of the many use cases that DeFi has unlocked for us all.
Unrelated to what you would traditionally think of as DeFi is Farming Tales, one of Rebus’ first platform partners, who are bringing farming to the blockchain. It’s a farm game where NFTs meet agriculture aiming to support the hardworking farmers who own these farms by allowing you to own the physical products the farm creates.
You may ask if this is a potent use case for DeFi. The way we see it, anything that decentralizes power and allows individuals to own assets they may never have had the opportunity to do otherwise is a potent use case. DeFi allows both through blockchain technology and the tokenization of physical assets.
Smart Labs is another Rebus platform partner which blockchain technology is essential for. They are solving a problem faced by a $50bn business, the selling, and authentication of the most famous ancient artifacts. Preserving humanity’s history seems like a great use case, doesn’t it?
The problem blockchain is solving is authentication. Convincing replicas of even the most famous pieces popping up everywhere, and with great fakes, it’s hard to verify the real one. Through unique biomarkers, these artifacts can be turned into NFTs to be stored on chain. Through this method, fakes will be incredibly easy to spot, and in-turn, position their service as a value-add to the industry as a whole. Irrefutably stored on-chain reduces the need for expert authenticators, another great use case for DeFi.
Ultimately, DeFi turns traditional markets on their head. Liquidity pools allow for the exchange of different assets, such as lending and borrowing, while simultaneously rewarding those who keep their capital in the pool. In TradFi, we replace the pool with a company, a centralized entity incentivized by its shareholders to make an ever greater profit. Therefore, when you combine decentralization with no necessity to maximize profits, you get an efficient and trustless market powered by smart contracts.
You can see all of our partners’ use cases through our Medium!